<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4310
FEDERATED PURCHASER, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 22-1589344
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
268 CLIFFWOOD AVENUE, CLIFFWOOD, NEW JERSEY 07721
(Address of principle executive offices)
(Zip Code)
(908) 290-2900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of August 17, 1995,
there are 1,719,758 shares of common stock outstanding.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FEDERATED PURCHASER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
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FEDERATED PURCHASER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, October 31,
1996 1995
(Unaudited)
CURRENT ASSETS:
Cash $ 128,626 $ 186,515
Investments - marketable securities - 99,744
Accounts receivable, less allowance
for doubtful accounts of $31,835 at
July 31, 1996 and $22,835 at
October 31, 1995 439,735 486,389
Inventories 398,714 392,282
Prepaid expenses and sundry receivables 23,831 36,868
Note receivable 20,000 -
Restrictive covenant receivable 24,375 22,500
TOTAL CURRENT ASSETS 1,035,281 1,224,298
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $113,200 and $103,684 34,087 43,132
OTHER ASSETS:
Note receivable - over one year 160,000 210,000
Security deposits 10,845 10,845
Restrictive covenant receivable - over one year 30,000 46,875
Other 85,754 70,454
TOTAL OTHER ASSETS 286,599 338,174
TOTAL ASSETS $1,355,967 $1,605,604
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,624 $ 10,624
Accounts payable 319,493 283,325
Accrued expenses 65,813 58,474
TOTAL CURRENT LIABILITIES 395,930 352,423
LONG-TERM DEBT, net of current portion 11,105 19,073
DEFERRED INCOME 54,375 69,375
TOTAL LIABILITIES 461,410 440,871
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
Authorized, 5,000,000 shares,
issued and outstanding, 1,719,758 shares 171,976 171,976
Additional paid-in capital 1,692,342 1,692,342
Accumulated deficit (908,683) (638,507)
Total 955,635 1,225,811
Less: Treasury stock at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 894,557 1,164,733
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,355,967 $1,605,604
(1)
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FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
JULY 31, JULY 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $1,009,865 $1,173,644 $3,008,004 $3,070,712
COSTS AND EXPENSES (INCOME):
Cost of sales 789,204 864,610 2,333,366 2,331,603
Selling, shipping and general
and administrative 304,259 321,451 961,007 1,005,797
Interest expense 707 707 2,121 2,790
Depreciation and amortization 3,172 2,872 9,516 7,978
Restrictive covenant (3,750) (5,625) (15,000) (15,000)
Interest income (4,440) (6,688) (13,830) (26,336)
Other income - (1,157) - (9,872)
Loss on sale of subsidiary - - - 182,791
TOTAL COSTS AND EXPENSES (INCOME) 1,089,152 1,176,170 3,277,180 3,479,751
LOSS BEFORE PROVISION FOR
INCOME TAXES (79,287) (2,526) (269,176) (409,039)
PROVISION FOR INCOME TAXES 500 - 1,000 950
NET LOSS $ (79,787) $ (2,526) $ (270,176) $ (409,989)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,611,317 1,611,317 1,611,317 1,615,875
LOSS PER COMMON SHARE (.05) .00 (.17) (.25)
CASH DIVIDEND PER COMMON SHARE .00 .00 .00 .00
</TABLE>
(2)
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FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JULY 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Held in
Additional Treasury
COMMON STOCK Paid-in Accumulated AT COST
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCES - November 1, 1994 1,719,758 $171,976 $1,692,342 $ (92,445) 19,552 $16,633
Net loss - - - (409,989) - -
Purchase of treasury stock - - - - 88,889 44,445
BALANCES - July 31, 1995 1,719,758 $171,976 $1,692,342 $(502,434) 108,441 $61,078
BALANCES - November 1, 1995 1,719,758 $171,976 $1,692,342 $(638,507) 108,441 $61,078
Net loss - - - (270,176) - -
BALANCES - July 31, 1996 1,719,758 $171,976 $1,692,342 $(908,683) 108,441 $61,078
</TABLE>
(3)
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FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1996 AND 1995
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (270,176) $ (409,989)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 9,516 7,978
Allowance for doubtful accounts 9,000 9,000
Accrued interest income - (3,013)
Loss on divestiture of Freedom
Electronics Corp. - 182,791
Freedom Electronics Corp., net assets and
liabilities disposed of - (127,802)
Deferred income taxes - 7,866
(Increase) decrease in operating assets:
Accounts receivable 37,654 (235,397)
Inventories (6,432) (3,987)
Prepaid expenses and sundry receivables 13,037 47,697
Increase (decrease) in operating liabilities:
Accounts payable 36,168 34,548
Accrued expenses 7,339 (46,278)
NET CASH USED BY OPERATING ACTIVITIES (163,894) (536,586)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on divestiture of Freedom
Electronics Corp. - 755,845
Purchase of marketable securities - (286,224)
Redemption of marketable securities 99,744 91,401
Purchase of property and equipment (471) -
Proceeds on note receivable 30,000 -
Increase in association membership costs
and other assets (15,300) (15,300)
NET CASH PROVIDED BY INVESTING ACTIVITIES 113,973 545,722
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (7,968) (71,967)
Proceeds from bank and equipment loans - -
NET CASH USED BY FINANCING ACTIVITIES (7,968) (71,967)
NET DECREASE IN CASH (57,889) (62,831)
CASH - beginning 186,515 225,015
CASH - ending $ 128,626 $ 162,184
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,121 $ 2,790
Income taxes $ - $ 789
(4)
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FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
NINE MONTHS ENDED JULY 31, 1996 AND 1995
(Unaudited)
1996 1995
NON-CASH INVESTING AND FINANCING ACTIVITY:
Divestiture of Freedom Electronics Corp.,
summarized as follows:
Selling price $ - $1,100,290
Less: Note receivable - (210,000)
Restrictive covenant - (90,000)
Treasury stock - (44,445)
Cash received $ - $ 755,845
(5)
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FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
(UNAUDITED)
NOTE 1
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position as of July 31, 1996 and the results of
operations for the nine months ended July 31, 1996 and 1995.
NOTE 2
The results of operations for the nine months ended July 31, 1996 and 1995
are not necessarily indicative of the results to be expected for the full
year.
(6)
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Item 2.
FEDERATED PURCHASER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
OPERATING RESULTS
The Company recognized a loss of $270,176 for the nine months ended July
31, 1996 on net sales of $3,008,004 compared to a loss of $409,989 on net
sales of $3,070,712 for the nine months ended July 31, 1995. The loss of
$409,989 for the nine months ended July 31, 1995 included a loss of
$182,791 on the divestiture of the Company's subsidiary, Freedom
Electronics Corp. ("Freedom"). The net loss for the three months ended
July 31, 1996 was $79,787, or $77,261 greater than the net loss of $2,526
for the comparable period in 1995, and is primarily a result of a
deterioration in the Company's sales levels during the past three months.
Net sales were $3,008,004 for the nine months ended July 31, 1996 as
compared to $3,070,712 for the comparable period in 1995, a decrease of
$62,708, or 2.1% less than the prior year. Net sales were $1,009,865 for
the three months ended July 31, 1996 as compared to $1,173,644 for the
comparable period in 1995, a decrease of $163,779, or 14% for the
comparable period in 1995. This decrease in sales levels for both the nine
months and three months ended July 31, 1996 represents a reversal of
moderate sales increases experienced by the Company during the previous six
months of the 1996 fiscal year and is due to intense competition
particularly in the Northeast United States, and trends adversely affecting
the electronics industry. These competitive circumstances continue to
negatively impact the Company's sales volume and gross margins, both of
which must improve in the short term for the Company to improve its results
of operations. The likelihood of achieving the necessary increases in both
sales volume and gross profit continues to be compromised by several
factors, including the loss of certain customers due to the departure of
key sales personnel, intense industry competition which has forced
management to seek sales increases through price reductions, and certain
other industry trends which continue to adversely impact smaller
electronics distributors. While management continues its efforts to
improve the Company's sales while preserving its current customer base,
there can be no assurances that management will succeed in achieving the
sales increases, improved margins and cost reductions which are necessary.
Cost of sales were $2,333,366 or 77.6% of sales for the nine months ended
July 31, 1996, compared to $2,331,603 or 75.9% of sales for the nine months
ended July 31, 1995. Cost of sales were $789,204 or 78.1% of sales for the
three months ended July 31, 1996, compared to $864,610 or 73.7% of sales
for the three months ended July 31, 1995. The gross profit percentage for
the nine months ended July 31, 1996 was 22.4% as compared to 24.1% for the
comparable period in 1995. The gross profit percentage for the three
months ended July 31, 1996 was 21.9% as compared to 26.3% for the
comparable period in 1995. This increase in cost of sales as a percentage
of sales and the corresponding reduction in gross profit percentage for
both the nine months and three months ended July 31, 1996 is the result of
increased competition within the industry and management's strategic
decision to attempt to improve the Company's sales volume and operating
results by reducing prices to its customers.
(7)
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FEDERATED PURCHASER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
OPERATING RESULTS (CONTINUED)
Selling, shipping and general and administrative ("SSG&A") expenses were
$961,007 for the nine months ended July 31, 1996 as compared to $1,005,797
for the nine months ended July 31, 1995, a decrease of $44,790, or 4.5%.
For the three months ended July 31, 1996, selling, shipping and general and
administrative expenses were $304,259 as compared to $321,451 for the prior
comparable period in 1995, a decrease of $17,192, or 5.3%. The decrease is
the result of a reduction in costs attributable to office salaries, data
processing salaries, warehouse salaries and insurance costs, partially
offset by an increase in sales salaries and non-recurring severance
payments due certain employees as a result of management's recent decision
to downsize the Company's labor force. Management anticipates that
further reductions in SSG&A expenses will be necessary to reverse the
Company's negative results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has been and continues to be adversely
affected by a variety of factors, including the operating loss of $546,062
for the year ended October 31, 1995 and the operating loss of $270,176 for
the nine months ended Jule 31, 1996. Moreover, the Company's liquidity
position may be negatively impacted to the extent that certain trends,
including intense competition from larger competitors in the electronics
industry and the migration of certain customers from smaller to larger
distributors, decrease the Company's sales levels, gross profit margins, or
both. While the Company enhanced its short-term liquidity position through
the one-time receipt of $755,845 in cash from the divestiture of Freedom, a
substantial portion of those proceeds have been used to sustain operations
during fiscal 1995 and for the nine months ending July 31, 1996. The
Company's ability to satisfy its fixed costs of operations will depend upon
management's success in increasing sales, improving gross margins, reducing
operating costs and securing additional lines of credit from outside
lenders. There can be no assurances that the Company's liquidity position
will not continue to be impaired both in the short-term and in the future.
Cash and cash equivalents decreased by $57,889 for the nine months ended
July 31, 1996 compared to a decrease of $62,831 for the nine months ended
July 31, 1995. For the nine months ended July 31, 1996, the Company used
net cash of $163,894 from operating activities primarily as a result of the
operating loss of $270,176, a decrease of $37,654 in accounts receivable, a
$43,507 increase in accounts payable and accrued expenses. The Company
generated cash from investing activities of $113,973 for this period
primarily from the sale of $99,744 in marketable securities, the collection
of $30,000 in notes receivable, partially offset by a $15,300 increase in
association membership costs. The collection of $30,000 in notes
receivable is due to Federated's renegotiation of certain payment terms
relating to debt owed by Freedom to Federated as a result of the
Divestiture.
(8)
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FEDERATED PURCHASER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The cash decrease of $62,831 for the nine months ended July 31, 1995 was
primarily attributable to the $409,989 loss for the operating period
including the $182,791 loss resulting from the Divestiture, as well as an
increase of $235,397 in accounts receivable, and a decrease of $47,697 in
prepaid expenses. The cash used by these operating activities was
partially offset by the Company's generation of $545,722 in cash from
investing activities, primarily from the receipt of $755,845 in proceeds
from the Divestiture. A portion of the Divestiture proceeds were also used
to purchase a net amount of $194,823 in marketable securities and to pay a
$15,300 increase in association membership costs.
During the nine months ended July 31, 1995, the Company paid off a note
payable in the amount of $63,999 and long-term debt in the amount of
$7,968. The note was pursuant to a credit line agreement with New Jersey
National Bank which had previously been withdrawn by the bank. The note
was secured by accounts receivable and inventory of the Company. As part
of the consideration received in connection with the divestiture of
Freedom, Federated was relieved of its obligations under a note payable to
United Jersey Bank in the amount of $250,000. Federated had been a
guarantor of this obligation of Freedom.
The Company currently has no access to any outside sources of capital,
except for approximately $22,000 outstanding under an existing equipment
financing arrangement. While management has sought and will continue to
seek new sources of financing from other financial institutions, no such
arrangement has yet been established. As a result, management must meet
substantially all of its short-term capital requirements from cash from
operations (if any) and existing cash reserves which continue to
deteriorate as a result of the Company's recurring operating losses. There
can be no assurances that the Company's current cash reserves will be
sufficient to satisfy the Company's financing requirements or that the
Company's inability to obtain capital from outside sources will not impair
its ability to continue future operations.
The Company maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded when incurred.
The Company's accounting policies with respect to customer right of returns
are governed upon written authorization by Federated except for special
order items.
The Company's balance sheet at July 31, 1996 reflects working capital of
$639,351 as compared to $1,005,882 at July 31, 1995, which represents a
decrease of $366,531.
The Company's stockholders' equity is $894,557 at July 31, 1996 equivalent
to a book value per share of $.56.
(9)
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PART II - OTHER INFORMATION
FEDERATED PURCHASER, INC.
OTHER INFORMATION
JULY 31, 1996 AND 1995
(Unaudited)
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
The Company was not required to report any material, unusual charges or
credits to income pursuant to Item 10(a) or a change in independent
accountants pursuant to Item 12 of Form 8-K for the nine months ended July
31, 1996 other than which has been reported.
Form 8-K filed on November 30, 1994 in regard to the divestiture of Freedom
Electronics Corp.
Form 8-K filed on December 20, 1994 in regard to the change in registrant's
certifying accountant.
There were no securities of the Company sold by the Company during the
three months ended July 31, 1996, which were not registered under the
Securities Act of 1933, in reliance upon an exemption from registrations
provided by Section 4(2) of the Act.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FEDERATED PURCHASER, INC.
(Registrant)
Harry J. Fallon, President and
Principal Accounting Officer
Date
(10)
